TRADER JOE’S

Keeping a Cool Edge

The average Trader Joe’s stocks only a small percentage of the products of local supermarkets in a space little larger than a corner store. How did this neighborhood market grow to major status, garner superior ratings, and become a model of management? Take a walk down the aisles of Trader Joe’s and learn how sharp attention to fundamentals of management made this chain more than the average Joe.

From Corner Store to Foodie Mecca

All across the United States hundreds of thousands of customers are treasure hunting. Driven by gourmet tastes but hungering for deals, they are led by cheerful guides in Hawaiian shirts who point them to culinary discoveries such as Ahi jerky, ginger granola, and baked jalapeño cheese crunchies. It’s just an average day at Trader Joe’s, the gourmet, specialty, and natural-foods store. Foodies, hipsters, and recessionistas alike are attracted to the chain’s charming blend of tasty treats and laid-back but enthusiastic customer service. Shopping at Trader Joe’s is less a chore than it is immersion into another culture. Crew members and managers wear smiles and are quick to engage in a friendly chat. Chalkboards unabashedly announce slogans such as, “You don’t have to join a club, carry a card, or clip coupons to get a good deal.” “When you look at food retailers,” says Richard George, professor of food marketing at St. Joseph’s University, “there is the low end, the big middle, and then there is the cool edge—that’s Trader Joe’s.” But how does Trader Joe’s compare with other stores with an edge, such as Whole Foods?

Both source locally and around the world. Each values employees and strives to offer the highest quality. However, Trader Joe’s has a cozy and intimate atmosphere that its rival lacks. Trader Joe’s limits its stock and sells quality products at low prices—about twice as much per square foot than other super- markets. But this scarcity benefits both Trader Joe’s and its customers. According to Swarthmore professor Barry Schwartz, author of The Paradox of Choice: Why Less Is More, “Giving people too much choice can result in paralysis . . . Research shows that the more options you offer, the less likely people are to choose any.” Founder “Trader” Joe Coulombe opened the first Trader Joe’s store over 50 years ago in Pasadena, California. Its success led to expansion into a bona-fide chain, as Trader Joe’s stores became known as oases of value that replaced humdrum sundries with exotic, one-of-a-kind foods priced persuasively below those of any reasonable competitor. Coulombe eventually sold the chain to the Albrecht family, German billionaires and owners of Aldi markets in the United States, Europe, and Australia.

Cost Control

Trader Joe’s prides itself on its thriftiness and cost-saving measures, proclaiming, “Every penny we save is a penny you save” and “Our CEO doesn’t even have a secretary.” Its strongest weapon is a deliciously simple approach to stocking stores: (1) search out tasty, unusual foods from all around the world; (2) contract directly with manufacturers; (3) label each product under one of several catchy house brands; and, (4) maintain a small stock, making each product fight for its place on the shelf. Most Trader Joe’s products are sold under a variant of their house brand—dried pasta under the “Trader Giotto’s” moniker, frozen enchiladas under the “Trader Jose’s” label, vitamins under “Trader Darwin’s,” and so on. But these store brands don’t sacrifice quality—readers of Consumer Reports award Trader Joe’s house brands top marks. The house brand success is no accident. According to Trader Joe’s [former] president, Doug Rauch, “the company pursued the strategy to put our destiny in our own hands.”

Customer Connection

Ten to 15 new products debut each week at Trader Joe’s—and the company maintains a strict “one in, one out” policy. Items that sell poorly or whose cost rises get the heave-ho in favor of new blood, something the company calls the “gangway factor.” If customers don’t like something about a product, out it goes— count spinach and garlic from China among the rejected losers. “Our customers have voiced their concerns about products from this region and we have listened,” the company said.

Discontinued items may be brought back if customers complain. “We feel really close to our customers,” says Audrey O’Connell, vice president of marketing for Trader Joe’s East. “When we want to know what’s on their minds, we don’t need to put them in a sterile room with a swinging bulb. We like to think of Trader Joe’s as an economic food democracy.” In return, customers keep talking and recruit new converts. Word-of-mouth advertising has lowered the corporation’s advertising budget to a fraction of that spent by supermarkets. Trader Joe’s culture of product knowledge and customer involvement is carefully cultivated among new hires and exist- ing employees. Everyone is encouraged to taste and learn about the products and to engage customers to share what they’ve experienced. Most shoppers recall instances when helpful crew members took the time to locate or recommend particular items. Job descriptions highlight desired soft skills, such as “ambitious and adventurous, enjoy smiling and have a strong sense of values.” They count as much as actual retail experience.

Strength from Within

A responsible, knowledgeable, and friendly “crew” is a natural extension of the firm’s promote-from-within philosophy. And crew members earn more than their counterparts at other chain grocers, sometimes by as much as 20%. Starting bene- fits include medical, dental, and vision insurance; company paid retirement; paid vacation; and a 10% employee dis- count. Assistant store managers earn a compensation pack- age averaging $70,0001 a year (including salary and cash bonus) while the store managers’ packages average $109,000. Future leaders enroll in training programs such as Trader Joe’s University that foster in them the loyalty necessary to run stores according to both company and customer expectations. The program teaches managers to imbue their part- timers with the customer-focused attitude shoppers have come to expect. What does the future hold? Will Trader Joe’s allure of cosmopolitan food at provincial prices continue to tempt new consumers? Will management practices continue to attract the talent Trader Joe’s needs to maintain its culture and customer focus as the competition heats up?

Case Analysis Questions

1. In what ways does Trader Joe’s demonstrate the importance of each responsibility in the management process—planning, organizing, leading, and controlling?

2. What lessons does the Trader Joe’s story offer to aspiring entrepreneurs who want to get off to a good start in any industry?